You want to get rich... build relationships with people in finance.
They understand the game of money.
7 acquisition terms you should know to speak their language:
They understand the game of money.
7 acquisition terms you should know to speak their language:
Free Cash Flow (FCF)
If you're going to be obsessed with any number in your biz, it should be this one.
It's the cash left over after you've paid all operating expenses and capital expenditures (building improvements, vehicle purchases, etc.)
= Operating Cash Flow − CapEx
If you're going to be obsessed with any number in your biz, it should be this one.
It's the cash left over after you've paid all operating expenses and capital expenditures (building improvements, vehicle purchases, etc.)
= Operating Cash Flow − CapEx
Net profit - aka net income
It’s the total earnings (profit) calculated after subtracting costs from revenue.
Costs here = COGS, depreciation, interest, taxes and all other expenses
This is the true profit.
It’s the total earnings (profit) calculated after subtracting costs from revenue.
Costs here = COGS, depreciation, interest, taxes and all other expenses
This is the true profit.
Working Capital
Current assets minus current liabilities.
Current assets = cash + inventory + $$ owed by customers
Current liabilities = accounts payable + wages payable + $$ owed to suppliers
See this as the cash you use to fund daily operations.
Current assets minus current liabilities.
Current assets = cash + inventory + $$ owed by customers
Current liabilities = accounts payable + wages payable + $$ owed to suppliers
See this as the cash you use to fund daily operations.
EBITDA
The gold standard for talking about true operating profit in deal making.
Stands for: Earnings Before Interest, Taxes, Depreciation, and Amortization.
(It ignores non cash expenses, financing, and tax decisions)
It’s used to calculate what a biz is worth.
The gold standard for talking about true operating profit in deal making.
Stands for: Earnings Before Interest, Taxes, Depreciation, and Amortization.
(It ignores non cash expenses, financing, and tax decisions)
It’s used to calculate what a biz is worth.
Valuation
You’d use this to determine the sales price of a company.
It is often calculated as a multiple from EBITDA or SDE or profit.
Let's say the multiple for auto shops is 3x EBITDA. The biz has an EBITDA of $50k...
Valuation = $50,000 x 3 = $150,000.
You’d use this to determine the sales price of a company.
It is often calculated as a multiple from EBITDA or SDE or profit.
Let's say the multiple for auto shops is 3x EBITDA. The biz has an EBITDA of $50k...
Valuation = $50,000 x 3 = $150,000.
LBO (aka Leveraged Buy Out)
It means using mostly borrowed money to buy a business.
Similar to how you pay 20% down and borrow 80% from the bank to buy a house, Private Equity does this but for businesses.
The assets of the company are often used as collateral to secure the funds.
It means using mostly borrowed money to buy a business.
Similar to how you pay 20% down and borrow 80% from the bank to buy a house, Private Equity does this but for businesses.
The assets of the company are often used as collateral to secure the funds.
Seller financing
Seller acts as the bank in a deal.
You pay them over time (at a lower interest rate than a bank) using the profit from the business you buy from them.
It's rare but possible to get a biz for $0 using this method.
Seller acts as the bank in a deal.
You pay them over time (at a lower interest rate than a bank) using the profit from the business you buy from them.
It's rare but possible to get a biz for $0 using this method.
P.S. Learn how to apply these terms to buy your first biz with me in September.
3 days. 100% virtual. With me & my team.
Details here: codiesanchez.com/msm/?utm_sourc…
3 days. 100% virtual. With me & my team.
Details here: codiesanchez.com/msm/?utm_sourc…
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